Residential Property Upturn Eases Monetary Tightening Impact Woes: Chris Wood
It’s also a “positive” that credit growth is picking up in India, says Chris Wood.
A sustained evidence of an upturn in the residential property market helps Jefferies’ Chris Wood to stay “relaxed” about the impact of monetary tightening on growth.
“India is the exact opposite of China with all the positive multiplier effects of a new upcycle in property after a seven-year downturn,” the market veteran wrote in his Greed & Fear note. “Residential property prices and transaction activity are rising in India. Further evidence of economic resilience and animal spirits is continuing strong GST revenue and buoyant retail sales.”
It’s also a “positive” that credit growth is picking up in India with bank loan growth of 14.5% year-on-year in late July, Wood said. The latest quarterly results depicted a “benign combination of rising credit growth and declining NPLs (non-performing loans)”.
“As for evidence of a capital-spending cycle, the latest earnings season was positive from the standpoint of the industrial sector in terms of rising order books.”
Residential property prices across the top seven Indian cities rose by an average of 6.1% in July-September, the highest growth rate since 2013, Jefferies said.
India Average Residential Property Price Change Across Top 7 Cities. (Source: Government of Maharashtra, Jefferies)
Annualised new residential project launches in the top seven cities rose to a seven-year high of 463 million square feet in the 12 months to June.
India New Residential Launches in Top-7 Cities. (Source: Government of Maharashtra, Jefferies)
Property registrations in Mumbai and New Delhi in July were 97% and 33% higher than pre-Covid July 2019 levels, the note said.
Number of Property Registrations in Mumbai (Source: Government of Maharashtra, Jefferies)
Resilient Stock Market
The Indian market has so far “surprised everyone” by its resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening, Wood said in his note. “This resilience should be viewed as reflecting the strength of the structural story.”
“Greed & Fear has been viewing calendar 2022 as a year of consolidation for the Indian stock market after the strong gains recorded last year and the negative of the commencement of a monetary tightening cycle,” he said. “Still the market has remained surprisingly resilient while India was correlated to the Wall Street-driven relief rally which kicked off in mid-June.” Foreigners returned as net buyers of equities in the past six weeks.
Wood has been marginally ‘overweight’ on India in the Asia Pacific ex-Japan relative-return portfolio in 2022 since the bas case at the start of the year was that India would underperform. “This is so far not the case which again is, in part, another positive consequence of Covid suppression given China’s underperformance year to date and its dominant weighting in the benchmark.”
Still, Greed & Fear maintains a 40% dominant weighting in India in its Asia ex-Japan long-only portfolio, citing that the country is by far the “best structural story” in Asia. Though a 30% weighting in the portfolio in the Indian financial and property sectors in a year of monetary tightening indicates that these stocks have been “tactically vulnerable”, Wood said.
“This has been the case even more regarding Greed & Fear’s Indian long-only portfolio where there’s a 61% weighting in financial and property stocks.”